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CASE NO.: Appeal (civil)  5795 of 2007

PETITIONER: Indu Nissan Oxo Chemicals Ind.Ltd

RESPONDENT: Union of India and Ors

DATE OF JUDGMENT: 11/12/2007

BENCH: Dr. ARIJIT PASAYAT & AFTAB ALAM

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO. 5795 OF 2007 (Arising out of SLP (C) No. 8041 of 2007)

Dr. ARIJIT PASAYAT, J.

1.      Leave granted.  

2.      Challenge in this appeal is to the order passed by the  High Court of Gujarat dismissing the writ petitions filed by the  appellant.  

3.      Challenge before the High Court was to the order dated  10.1.2006 passed by the Customs, Excise & Service Tax  Appellate Tribunal (in short ’CESTAT’) directing deposit of  rupees two crores as a condition precedent for entertaining the  appeal.  It is to be noted that the total amount of penalty  imposed was Rs.10,00,00,000/-. The dispute relates to  classification of the product imported by the appellant and  consequential benefits claimed by it under various  Notifications issued by the Director General of Foreign Trade.  The customs authorities did not accept the stand of the  appellant about its classification.  The levy of penalty was  challenged by way of appeal before the CESTAT. It was  accompanied by an application seeking waiver of the penalty  imposed by the Commissioner of Customs (in short the  ’Commissioner’).   

4.      After hearing the parties, the CESTAT inter alia noted as  follows:         "The learned Advocate for the applicants  contends in one hand that a letter of Ms.  Indian Oil Corporation Ltd. written by its  Assistant Manager, was on the record of the  Commissioner in these proceedings and was  not considered in spite of the directions in  remand to consider all materials. It was also  submitted that the directions of the DGFT  dated 17.12.1997 have not been complied,  with even though certificates showing the use  of the return stream were on record in parallel  proceedings before the department. It was also  submitted by the learned advocate that if these  certificates were considered, then they should  be granted the benefit of DGFT waiver of

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condition of the resale of the return stream,  vide their letter dated 17.12.1997 and they  were not so liable to any penalty. The Learned  advocate took us through the Balance Sheet of  the applicant  company which discloses that  as on 31.3.2005, they have a loss of Rs.12.20  crores and in the earlier year the said loss was  Rs.17.74 crores. He submits that they are a  BIFR company and pleads for full waiver of the  pre-deposit requirement under Section 129E of  the Customs Act to hear this appeal.  The Learned SDR on the other hand  takes us through the letter dated 17.12.1997  of DGFT and submits that this letter exempts  and is applicable only to import of naphtha  and return stream of such naphtha. He  submits that the letter relied upon by the  advocate of Indian Oil Corporation, which he is  making a grievance about, it stating that  heptene is not known and understood as  naphtha. The certificates of consumption of  the return stream are also certifying the  utilization and the return stream of nonene  and heptene and not to naphtha.

       Considering the submission in this  matter, prima facie we are of the view that  the waiver granted of the condition by the  DGFT is not applicable to the subject imports  in this case. The other issues raised will have  to be gone into in detail at the regular  hearing. At this prima facie stage considering  the merits and the financial position as also  the fact that this is the second round, we  would consider this case to be appropriate to  direct the applicants to terms of pre-deposit  requirement to be effected under Section  129E of the Customs Act, 1962. We would,  therefore, direct the applicants to deposit  Rs.2,00,00,000/- (rupees two crores only)  and report compliance thereof within 12  (twelve) weeks i.e. on 17.4.2006. On such  compliance, being reported, the matter would  be listed for regular hearing. Failure to  deposit and meet the requirement of Section  129E calls for dismissal of the appeal without  any further notice."

5.      The penalty, it is to be noted, has been imposed under  Section 112 (a) of the Customs Act, 1962 (in short the ’Act’). A   specific finding was recorded by the Commissioner  that in  respect of the goods the assessee was required to obtain a  licence for clearance. However, the value of the goods which  could have been confiscated was in the neighbourhood of  Rs.66.57 crores. As it was not possible  to direct confiscation  since they were released to the appellant for use in the factory  premises, the Commissioner imposed penalty of  Rs.10,00,00,000/-.  

6.      The matter was earlier before the Tribunal and at that  stage matter had been remitted for fresh adjudication. By  order dated 11.4.1998 the Commissioner passed a fresh order  and the levy of penalty of Rs.10,00,00, 000/- was re-affirmed.  

7.      Learned counsel for the appellant submitted that the

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bona fide of the appellant is writ large. The company has  become a sick company and, therefore, insistence on pre  deposit even of a part which is in this case a huge sum of  rupees two crores would deprive the appellant of the statutory  right of appeal.  It is pointed out that from the financial  statements it is clear that the appellant has suffered huge  losses. For the assessment years 31st March, 2004, 31st  March, 2005 and 31st March, 2006 respectively the figures of  losses are Rs.17.74 crores, Rs.12.20  crores and Rs.8.28  crores. It is stated that the financial position has become  dismal  and insistence on pre-deposit is by overlooking the  financial sickness of the company. The imports in question  were made during the period 1992 to 1997. There was lot of  confusion and because of that dispute has arisen. Reference is  made to certain communications of the DGFT and Indian Oil  Corporation (in short ’IOC’).

8.      Learned counsel for the respondents on the other hand  has submitted that there is no prima facie case and even if it  is conceded for the sake of arguments that there is financial  hardship, that cannot be a ground to dispense with pre  deposit and in any event the balance of convenience is not in  favour of the appellant.  

9.      We shall deal with first the issue relating to the question  of stay/dispensation of pre deposit in respect of sick industry.  In Metal Box India Ltd. v. Commissioner of Central Excise,   Mumbai (2003 (155) ELT 13 (S.C.), this Court had clearly  observed as follows:

       "Mr. Rana Mukherjee, the learned  counsel for the appellants submits that in view  of Section 22 of the Sick Industrial Companies  (Special Provisions) Act, 1985 (for short ’the  Sick Industries Act’), the appellant need not  deposit the amount, as ordered by the  Tribunal, as protection is available to the  appellant under the said provision. We are  afraid, we cannot accept the contention of the  learned counsel for reasons more than one.  First, this aspect was  not the subject matter  of the order under challenge and, secondly,  Section 22 of the Sick Industries Act provides  relief in regard to the proceedings which relate  to (a) winding up of the industrial company; (b)  execution distress or the like against any of  the properties of the industrial company; (c)  the appointment of a receiver in respect  thereof, and (d) proceeding in regard to suit for  recovery of money or for the enforcement of  any security against the industrial company or  of any guarantee in respect of any loans or  advance granted to the industrial company.  Payment of pre-deposit covered under Section  35F of the Central Excise Tax Act, 1944 does  not fall under any of the above-mentioned  categories in Section 22 of the Sick Industries  Act."     

10.     Principles relating to grant of stay pending disposal of the  matters before the concerned forums have been considered in  several cases. It is to be noted that in such matters though  discretion is available, the same has to be exercised judicially.

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11.     The applicable principles have been set out succinctly in  Silliguri Municipality and Ors. v. Amalendu Das and Ors. (AIR  1984 SC 653), M/s Samarias Trading Co. Pvt. Ltd. v. S.  Samuel and Ors. (AIR 1985 SC 61) and Assistant Collector of  Central Excise v. Dunlop India Ltd. (AIR 1985 SC 330). 12.     It is true that on merely establishing a prima facie case,  interim order of protection should not be passed.  But if on a  cursory glance it appears that the demand raised has no leg to  stand, it would be undesirable to require the assessee to pay  full or substantive part of the demand.  Petitions for stay  should not be disposed of in a routine matter unmindful of the  consequences flowing from the order requiring the assessee to  deposit full or part of the demand.  There can be no rule of  universal application in such matters and the order has to be  passed keeping in view the factual scenario involved.  Merely  because this Court has indicated the principles that does not  give a license to the forum/authority to pass an order which  cannot be sustained on the touchstone of fairness, legality and  public interest. Where denial of interim relief may lead to  public mischief, grave irreparable private injury or shake a  citizens’ faith in the impartiality of public administration,  interim relief can be given.

13.     Section 129-E of the Act reads as follows:

"129E. DEPOSIT, PENDING APPEAL, OF  DUTY AND INTEREST DEMANDED OR  PENALTY LEVIED. - Where in any appeal  under this Chapter, the decision or order  appealed against relates to any duty and  interest demanded in respect of goods which  are not under the control of the customs  authorities or any penalty levied under this  Act, the person desirous of appealing against  such decision or order shall, pending the  appeal, deposit with the proper officer the duty  and interest demanded or the penalty levied. Provided that where in any particular  case, the Commissioner (Appeals) or the  Appellate Tribunal is of opinion that the  deposit of duty and interest demanded or  penalty levied would cause undue hardship to  such person, the Commissioner (Appeals) or,  as the case may be, the Appellate Tribunal  may dispense with such deposit subject to  such conditions as he or it may deem fit to  impose so as to safeguard the interests of  revenue."  

14.     Two significant expressions used in the provisions are  "undue hardship to such person" and "safeguard the interests  of revenue".  Therefore, while dealing with the application twin  requirements of considerations i.e. consideration of undue  hardship aspect and imposition of conditions to safeguard the  interest of Revenue have to be kept in view.

15.     As noted above there are two important expressions in  Section 129-E.  One is undue hardship. This is a matter  within the special knowledge of the applicant for waiver and  has to be established by him.  A mere assertion about undue  hardship would not be sufficient.  It was noted by this Court  in S. Vasudeva v. State of Karnataka and Ors. (AIR 1994 SC  923) that under Indian conditions expression "Undue  hardship" is normally related to economic hardship.  "Undue"

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which means something which is not merited by the conduct  of the claimant, or is very much disproportionate to it. Undue  hardship is caused when the hardship is not warranted by the  circumstances.

16.     For a hardship to be ’undue’ it must be shown that the  particular burden to have to observe or perform the  requirement is out of proportion to the nature of the  requirement itself, and the benefit which the applicant would  derive from compliance with it.

17.     The above position has been highlighted in M/s Benara  Valves Ltd. and Ors. v. Commissioner of Central Excise and  Anr. (2006 (12) SCALE  303). Though the said case related to  dispute under the Customs Excise Act, 1944 (in short the  ’Excise Act’) the parameters are the same.  

18.     We do not find any infirmity in the order directing deposit  of Rupees two crores as affirmed by the High Court. The  appellant is granted three months time to deposit the amount  fixed by the CESTAT. If it is not deposited within the aforesaid  time, the appeal before the CESTAT shall stand dismissed.  

19.     The appeal is disposed of accordingly with no order as to  costs.